CARVANA CO. Q2 FY2025 earnings call

• Carvana was the fastest-growing and most profitable automotive retailer, with 41% growth in retail units sold and 42% revenue growth. Adjusted EBITDA margin improved by 200 basis points year-over-year, and it achieved new records for GAAP operating income and net income. - Focused on three primary areas: driving long-term growth, constantly improving the business through fundamental gains to share with customers, and building foundational capabilities to strengthen the platform. - Demonstrated operating efficiencies with SG&A expense reduction per retail unit sold, driven by operational efficiency initiatives and higher retail units sold. - Advertising expense increased, but they believe in the early days of automotive e-commerce adoption and see opportunity to build awareness.

In the second quarter, retail units sold totaled 143,280, a 41% increase and a new company record. Revenue was $4.84 billion, a 42% increase. Non-GAAP retail GPU increased by $195, primarily due to reductions in reconditioning and inbound transport costs and tariff-related impacts. Non-GAAP wholesale GPU decreased by $85, driven by faster growth in retail units sold than wholesale marketplace units and lower wholesale vehicle depreciation rates. Non-GAAP other GPU increased by $126, mainly from better cost of funds and higher attachment rate on vehicle service contracts, partially offset by a prior year loan sale impact. Retail units sold contributed significantly to revenue, with revenue from retail units being a major component.

• Expect sequential increase in retail units sold in Q3 2025. - Full year 2025 adjusted EBITDA guidance is $2.0 billion to $2.2 billion, an increase from $1.38 billion in 2024.

• Operational challenges in sustaining high growth rates, such as potential issues with reconditioning capacity and logistics as the business scales. - Risks related to market dynamics and competitive factors that could impact growth and profitability, though Carvana believes in its unique competitive dynamics and ability to adapt.

Q: Incremental adjusted EBITDA margin came in over 17% this quarter. Is it indicative of future incremental margins?

A: Ernest C. Garcia said it reflects business leverage and improvement, with the goal of reaching 3 million units and 13.5% EBITDA margin, and the business has potential for fundamental gains in margins.

Q: About Avis partnership and expansion beyond used cars?

A: Ernest C. Garcia said they stay focused on making the customer experience better and efficient, but are open to opportunities.

Q: Experimenting with APR and price toggling?

A: Ernest C. Garcia said they have a vertically integrated machine with levers, focusing on making intelligent decisions and progress overall.

Q: Marketing side, brand awareness?

A: Ernest C. Garcia said they run surveys on awareness, understanding, and trust, see constant progress but much opportunity, and are testing different marketing channels.